Industry super says it ‘needs’ independent directors

Union-backed superannuation funds, in a dramatic concession, want the law changed to allow them to appoint more independent directors.

The move could reduce union ­officials’ influence over billions of ­dollars in retirement savings.

Chairmen of some of the most prominent industry retirement schemes say they struggle to find enough qualified people from employer groups and unions to fill their boards. They are prepared to accept up to a third of their directors should come from outside the industrial relations world.

However, the industry funds are still fighting a push by the Coalition ­government for all boards to have a majority of independent directors.

The Australian Institute of Superannuation Trustees intends to recommend the Superannuation Industry Supervision Act be changed to allow up to a third of industry fund board seats to be held by independent trustees.

Under current rules, funds must apply to the prudential regulator to appoint more than one independent director.

A draft submission by the institute to a government discussion paper on ­corporate governance in the $1.7 trillion retirement savings industry, obtained by The Australian Financial Review, says independent directors can bring “particular expertise" to boards.

Distinct requirements

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It argues industry funds should have “distinct governance requirements" compared with retail funds and that having an equal number of employer and employee representatives on a board is the best way to ensure “accountability to members".

Institute director
Angela Elmslie
, who also chairs the Health Employees Superannuation Trust Australia, one of the biggest industry super funds, denied the U-turn was in response to Assistant Treasurer
Arthur Sinodinos
’s proposal to force super funds to appoint a majority of independent trustees.

“Our position has evolved," she said.

The institute rejected a 2010 review recommendation that one third of industry fund trustees be independent.

David Galbally
, the chairman of TWU Superannuation Fund, which is for workers in the transport industry, said the shift in the institute’s position was partly due to the difficulty finding directors from employer and employee groups with the appropriate skills and time to run a super fund, particularly because retirement schemes had become highly complex.

“One of our concerns is the pool of available people within the industry to dedicate time to trustee duties. The pool needs to be enlarged. The ability to step outside becomes important," he said.

“Over time the availability of people with time [to sit on a fund board] may shrink," said
Sandy Grant
, chairman of the $8 billion CareSuper scheme whichs caters to managerial and ­administration staff.

He said there was “absolutely" enough people in unions and employer groups to occupy up to two-thirds of board seats, especially given the ability of those organisations to nominate individuals from outside their ranks.

In its submission to the government, the Australian Institute of ­Super­annuation Trustees will recommend that funds be required to justify to the ­Australian Prudential Regulation Authority why their board composition is in the best interests of members.

Coalition ‘resents’ successful union funds

The chairmen argued the Coalition’s drive to crimp the influence of unions and employer groups over industry super funds was ideologically driven and stemmed partly from “resentment" that industry funds, which oversee $325 billion of assets, had successful investment returns.

“Superannuation has been caught up in the crossfire of an industrial ­relations war," Mr Grant said.

“A lot of it comes out of sheer ­resentment. They thought industry funds would fail because of ­incompetence or having their fingers in the till. But the opposite has happened."

In the 10 years ended June 2013 industry funds recorded an average annual gain of 7.5 per cent, against a 6.4 per cent average rise posted by retail schemes, which are largely owned by the banks and listed wealth companies, according to research firm Chant West.

The debate over the structure of super boards has become increasingly heated as Prime Minister
Tony Abbott
has stepped up his attacks on the union movement, foreshadowing a ­broad-ranging royal commission into corruption amid allegations of criminal activity by union officials in the building industry, and misuse of expenses in the Health Services Union.

“[The push for a majority of ­independent directors on super boards] is ideologically driven. It is not ­evidence-based. Super is not about ­ideology," Mr Galbally said.

“What makes the government ­qualified to say there is a need for change against the empirical evidence that members’ balances have risen? And will the government take responsibility if something goes wrong?"

Mr Galbally said there was no need for super funds to be treated in the same way as other entities supervised by APRA, such as banks and insurers, because by law, super scheme directors already had an obligation to act in the best interests of members.

Ms Elmslie warned there was a “high level of risk" associated with changing board structures. As a result, “if you can’t show evidence of the benefit of changing, then you should leave it to the industry to evolve," she said.The institute submission will argue that not-for-profit industry funds have “evolved to meet the different needs of fund members" and that any regulations “should allow flexibility" to allow funds to cater to their members’ needs. Equal representation between employee and employer groups on fund boards has proved “highly successful" it will say.